11 U.S. Code § 1112 - Conversion or dismissal

(a)The debtor may convert a case under this chapter to a case under chapter
7 of this title unless—

(1)the debtor is not a debtor in possession;

(2)the case originally was commenced as an involuntary case under this chapter; or

(3)the case was converted to a case under this chapter other than on the debtor’s request.

(b)

(1)Except as provided in paragraph (2) and subsection (c), on request of a party in interest, and after notice and a hearing, the court shall convert a case under this chapter to a case under chapter 7 or dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause unless the court determines that the appointment under section 1104(a) of a trustee or an examiner is in the best interests of creditors and the estate.

(2)The court may not convert a case under this chapter to a case under chapter 7 or dismiss a case under this chapter if the court finds and specifically identifies unusual circumstances establishing that converting or dismissing the case is not in the best interests of creditors and the estate, and the debtor or any other party in interest establishes that—

(A)there is a reasonable likelihood that a plan will be confirmed within the timeframes established in sections
1121(e) and
1129(e) of this title, or if such sections do not apply, within a reasonable period of time; and

(B)the grounds for converting or dismissing the case include an act or omission of the debtor other than under paragraph (4)(A)—

(i)for which there exists a reasonable justification for the act or omission; and

(ii)that will be cured within a reasonable period of time fixed by the court.

(3)The court shall commence the hearing on a motion under this subsection not later than 30 days after filing of the motion, and shall decide the motion not later than 15 days after commencement of such hearing, unless the movant expressly consents to a continuance for a specific period of time or compelling circumstances prevent the court from meeting the time limits established by this paragraph.

(4)For purposes of this subsection, the term “cause” includes—

(A)substantial or continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation;

(B)gross mismanagement of the estate;

(C)failure to maintain appropriate insurance that poses a risk to the estate or to the public;

(D)unauthorized use of cash collateral substantially harmful to 1 or more creditors;

(E)failure to comply with an order of the court;

(F)unexcused failure to satisfy timely any filing or reporting requirement established by this title or by any rule applicable to a case under this chapter;

(G)failure to attend the meeting of creditors convened under section
341(a) or an examination ordered under rule 2004 of the Federal Rules of Bankruptcy Procedure without good cause shown by the debtor;

(H)failure timely to provide information or attend meetings reasonably requested by the United States trustee (or the bankruptcy administrator, if any);

(I)failure timely to pay taxes owed after the date of the order for relief or to file tax returns due after the date of the order for relief;

(J)failure to file a disclosure statement, or to file or confirm a plan, within the time fixed by this title or by order of the court;

(K)failure to pay any fees or charges required under chapter
123 of title
28;

(M)inability to effectuate substantial consummation of a confirmed plan;

(N)material default by the debtor with respect to a confirmed plan;

(O)termination of a confirmed plan by reason of the occurrence of a condition specified in the plan; and

(P)failure of the debtor to pay any domestic support obligation that first becomes payable after the date of the filing of the petition.

(c)The court may not convert a case under this chapter to a case under chapter
7 of this title if the debtor is a farmer or a corporation that is not a moneyed, business, or commercial corporation, unless the debtor requests such conversion.

(d)The court may convert a case under this chapter to a case under chapter 12 or 13 of this title only if—

(1)the debtor requests such conversion;

(2)the debtor has not been discharged under section
1141(d) of this title; and

(3)if the debtor requests conversion to chapter
12 of this title, such conversion is equitable.

(e)Except as provided in subsections (c) and (f), the court, on request of the United States trustee, may convert a case under this chapter to a case under chapter
7 of this title or may dismiss a case under this chapter, whichever is in the best interest of creditors and the estate if the debtor in a voluntary case fails to file, within fifteen days after the filing of the petition commencing such case or such additional time as the court may allow, the information required by paragraph (1) of section
521(a), including a list containing the names and addresses of the holders of the twenty largest unsecured claims (or of all unsecured claims if there are fewer than twenty unsecured claims), and the approximate dollar amounts of each of such claims.

(f)Notwithstanding any other provision of this section, a case may not be converted to a case under another chapter of this title unless the debtor may be a debtor under such chapter.

Section 1112 of the House amendment represents a compromise between the House bill and Senate amendment with respect to the factors constituting cause for conversion of a case to chapter 7 or dismissal. The House amendment combines two separate factors contained in section
1112(b)(1) andsection 1112(b)(2) of the Senate amendment. Section 1112(b)(1) of the House amendment permits the court to convert a case to a case under chapter 7 or to dismiss the case if there is both a continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation; requiring both factors to be present simultaneously represents a compromise from the House bill which eliminated both factors from the list of causes enumerated.

Sections 1112(c) and 1112(d) of the House amendment is derived from the House bill which differs from the Senate amendment only as a matter of style.

senate report no. 95–989

This section brings together all of the conversion and dismissal rules for chapter 11 cases. Subsection (a) gives the debtor an absolute right to convert a voluntarily commenced chapter 11 case in which the debtor remains in possession to a liquidation case.

Subsection (b) gives wide discretion to the court to make an appropriate disposition of the case sua sponte or upon motion of a party in interest, or the court is permitted to convert a reorganization case to a liquidation case or to dismiss the case, whichever is in the best interest of creditors and the estate, but only for cause. Cause may include the continuing loss to or dimunition [sic] of the estate of an insolvent debtor, the absence of a reasonable likelihood of rehabilitation, the inability to effectuate a plan, unreasonable delay by the debtor that is prejudicial to creditors, failure to file a plan within the appropriate time limits, denial of confirmation and any opportunity to modify or propose a new plan, revocation of confirmation and denial of confirmation of a modified plan, inability to effectuate substantial consummation of a confirmed plan, material default by the debtor under the plan, and termination of the plan by reason of the occurrence of a condition specified in the plan. This list is not exhaustive. The court will be able to consider other factors as they arise, and to use its equitable powers to reach an appropriate result in individual cases. The power of the court to act sua sponte should be used sparingly and only in emergency situations.

Subsection (c) prohibits the court from converting a case concerning a farmer or an eleemosynary institution to a liquidation case unless the debtor consents.

Subsection (d) prohibits conversion of a reorganization case to a chapter 13 case unless the debtor requests conversion and his discharge has not been granted or has been revoked.

Subsection (e) reinforces section
109 by prohibiting conversion of a chapter 11 case to a case under another chapter proceedings under which the debtor is not permitted to proceed.

References in Text

The Federal Rules of Bankruptcy Procedure, referred to in subsec. (b)(4)(G), are set out in the Appendix to this title.

Amendments

2010—Subsec. (b)(1). Pub. L. 111–327, § 2(a)(33)(A)(i), amended par. (1) generally. Prior to amendment, par. (1) read as follows: “Except as provided in paragraph (2) of this subsection, subsection (c) of this section, and section
1104(a)(3), on request of a party in interest, and after notice and a hearing, absent unusual circumstances specifically identified by the court that establish that the requested conversion or dismissal is not in the best interests of creditors and the estate, the court shall convert a case under this chapter to a case under chapter 7 or dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, if the movant establishes cause.”

Subsec. (b)(2). Pub. L. 111–327, § 2(a)(33)(A)(ii)(I), inserted introductory provisions and struck out former introductory provisions which read as follows: “The relief provided in paragraph (1) shall not be granted absent unusual circumstances specifically identified by the court that establish that such relief is not in the best interests of creditors and the estate, if the debtor or another party in interest objects and establishes that—”.

2005—Subsec. (b). Pub. L. 109–8added subsec. (b) and struck out former subsec. (b) which consisted of introductory provisions and pars. (1) to (10) relating to conversion of cases under this chapter to chapter 7 cases or dismissal for cause in the best interest of creditors and the estate.

Amendment by Pub. L. 109–8effective 180 days after Apr. 20, 2005, and not applicable with respect to cases commenced under this title before such effective date, except as otherwise provided, see section 1501 ofPub. L. 109–8, set out as a note under section
101 of this title.

Effective Date of 1994 Amendment

Amendment by Pub. L. 103–394effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 ofPub. L. 103–394, set out as a note under section
101 of this title.

Effective Date of 1986 Amendment

Effective date and applicability of amendment by section 224 ofPub. L. 99–554dependent upon the judicial district involved, see section 302(d), (e) ofPub. L. 99–554, set out as a note under section
581 of Title
28, Judiciary and Judicial Procedure.

Amendment by section 256 ofPub. L. 99–554effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) ofPub. L. 99–554.

Effective Date of 1984 Amendment

Amendment by Pub. L. 98–353effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) ofPub. L. 98–353, set out as a note under section
101 of this title.

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